There is an old joke in economics about the country that gets rich by doing each other's washing. If I do my own washing, it is work and it is economic output but it does not count in a country's GDP. However, if I pay Bill to do it, suddenly the measured GDP of this economy will increase even though no more work or wealth has been created. A nation that did just each other's washing would not be a rich country; indeed, it would have no wealth at all.

Too many fall for this fallacy. It is most evident at the moment in the desire for some to maximise workforce participation. Maximising work should never be an end in itself. Work is a means towards getting things: food, a car, a house. Work makes you give up things, primarily spending time at home with family or friends. These opportunity costs are not counted in GDP and are too often ignored by those who simply wish to maximise our tax revenue, not our overall wealth or wellbeing.

It is ironic that the most valuable thing in life, family time, is not valued in our economic statistics at all. The very word 'economics' comes from the Greek term 'for household management', yet the household is ignored in so much of our economic commentary. But I am not here to complain about the limitations of our bean counters. There is no way to reliably measure the value of family time, but even more reason that it should not be ignored when thinking about policy.

I am here to complain about the unfairness of our tax system as it relates to those who seek to spend more time at home with their families. The most widely accepted principle underpinning tax design is the goal of horizontal equity—that people should be taxed according to their capacity to pay. In other words, people should only pay the same amount of tax if their capacity to pay is the same. Our tax system fails to achieve horizontal equity when comparing double-income families to single-income families. To paraphrase Tolstoy: each family fills out the same tax return, but every taxed family is taxed in its own way.

I mentioned this in my first speech. A single-income household with an income of $120,000 pays $10,000 more tax in Australia than a double-income family with the same joint income of $120,000. To put it another way: a double-income family could potentially earn up to $215,000 a year before they pay the same average tax rate as a single-income family on just $120,000. This is unfair. People with similar ways and means should pay similar amounts of tax. Each family, regardless of the way in which its income is earned, has the same costs—the same bills to pay, mouths to feed and spending obligations to meet.

Australia has one of the most hostile tax systems in the world for single-income families. The OECD released a report in 2012 that compared the tax burden of families with different incomes across countries. The report used a range of different income levels but the results between countries were similar regardless of the income level chosen. Take the case of a couple earning 133 per cent of the average wage in different countries. Australia's tax system discriminated against single-income earner families to a much larger extent than average. In Australia single-income families paid 38 per cent more tax than dual-income families. Compare that to the OECD average of 21 per cent. So Australian single-income families paid almost double the average tax paid by double-income families.

Overall the OECD report found that, of the 37 countries examined in 2010, Australia had the fifth most discriminatory tax system against single-income families behind Finland, Ireland, Mexico and New Zealand. Australia is out of step on the treatment of single-income families. As the OECD stated, 'at the given levels of household income, the Australian tax/benefit system favours dual-earner couples over single-earner families'.

Many countries that have similar income levels to Australia, such as the US, Germany, France and Japan either treat single- and double-income couples in a neutral manner or have very low levels of discrimination. Currently half of the OECD countries that treat spouses separately for tax purposes have joint taxation or some joint elements that provide tax relief and tax credits that are transferable between partners. Some 18 OECD countries provide joint taxation cover including the Czech Republic, which covers couples with children, France which covers families, Germany which covers married couples, Ireland which covers married couples, Luxembourg which covers married couples, Norway where it is optional, Poland which covers married couples, Portugal which covers families, Spain where it is optional, Switzerland which covers married couples and the US which covers married couples.

All of these comparisons were done using three- to four-year-old data and things have only gotten worse since for Australian single-income families. Australia has lifted its tax-free threshold from $6,000 to $18,000. Of course, single-income families by definition have access to only one tax-free threshold and therefore now suffer an even greater tax disadvantage than families that can access two tax-free thresholds. I firmly believe we must move our tax system to one based on the family not the individual. We should do that because it is a good idea here, not just because it is being done overseas. It is a good idea here because families make decisions as a family and therefore we should tax them as a family. It is a good idea here because maximising the number of people that work should not be our core objective. It is a good idea here because there are clear and identifiable benefits of parents staying home and looking after their children.

The great Nobel Prize winning economist Gary Becker did path-finding work on household decision making. In A Treatise on the Family he noted that families make economic decisions as a unit. Families share paid and non-paid work between themselves and substitute leisure and work time to maximise the total welfare of the family as a unit. When we tax different family members differently we introduce distortions into family decision making. A family may need, let us say, $100,000 for its annual budget. If both parents faced the same tax rates they would make the decision jointly and may decide that one will specialise in paid work while the other stays home. However, when the marginal tax rate is lower or often zero, as it is in our system, for a parent that stays home, more families will make the decision for both parents to work rather than just one. This will happen even though in the absence of a tax system many more families would chose to have one parent stay home for all or some of the time. Our tax system is therefore not giving people what they want. It is changing parental and family behaviour to match the priorities of the workplace not the priorities of the home.

There is no reason why we should want to see the greatest number of people as possible in paid work. Work is important and work is great but it is not as important as family. There are more hours outside nine to five than between nine to five, and what we achieve in the non-work parts of our lives, with our friends and our family, will for most be our most important achievements and legacies. As the old story of the Roman matron goes, she scorned the ostentatious wealth of a nouveau riche socialite by turning to her children and declaring, 'These are my jewels!'

There are powerful interests within government that would seek to reverse this natural order of things. Naturally some in government, especially those responsible for budgetary matters—and I recognise the Minister for Finance is in the chamber—would like more human interactions to occur with the intervention of an EFTPOS machine. We pay GST on those transactions and we pay PAYG when we go to work and all of that ends up at the ATO. What we forget when we make all human behaviour occur through the formal market economy is l-o-v-e. The family is the ultimate black market economy. There is no tax in the family. Even worse for people like the honourable senator for Western Australia there are not even any cash transactions. There are those who do not like the fact that this all happens outside of the supervision of government. Well those interests should be resisted in favour of the family and in favour of the privacy and sanctity of the household and household decisions.

The best teacher for a child, particularly those of a young age, is their mum or their dad. Most mums and dads do not have degrees or certificates on child behaviour or learning but they instinctively know what to do. Two weeks ago tomorrow my wife and I had our fourth child, our fourth boy. Our boys were very happy that they have a baby brother not a baby sister. For whatever reason, the birth this time affected me a little more than other times. Perhaps I am just more comfortable in the delivery suite, having done it all before. Straight after the birth the midwives made me take my shirt off and have some chest to chest time with my new son. He was as comfortable with me immediately as he was with his mum. I find it miraculous that a newborn, who does not know how to walk or talk and can barely see, can know smells and is settled by the smell of his mum or his dad. You cannot teach smells in an early childhood development class. A degree hanging on the wall means nothing to a child and will not do anything to make them feel more comfortable or safe in your care.

There is no substitute for a good mum or a good dad. As the Productivity Commission said in its Paid Parental Leave inquiry:

Most of the more recent evidence tends to support the view that the use of non-parental care/child care (usually necessitated by maternal employment) when initiated within the first year of a child’s life can contribute to behavioural problems and, in some contexts, delayed cognitive development.

The OECD recently said, in a similar vein:

Taking stock of the evidence, it seems that child development is negatively affected when an infant does not receive full-time personal care (breastfeeding issues aside…) for at least the first 6 to 12 months of his/her life.

But our tax system right now actively encourages—indeed subsidises—mums and dads to go to work and let someone else look after their children. We have this the wrong way around. If anything, we should be encouraging mothers and fathers to spend more time with their children not less.

Some say that single-income families are subsidised because the work is provided before tax. Those who make such arguments are welcome to them but, of course, they should take them to their logical conclusion. For practical reasons, we do not tax the work or leisure that occurs in the family home. If we were to do so, we should do it for all those who live at home—the sick, the disabled and the old. All receive such forms of implicit income, but there is no way we can adjust our tax system to reflect that.

As Terry Dwyer has pointed out, the notion that home activities represent some form of untaxed production is tantamount to saying that our entire lives—waking, sleeping and working—should be at the disposal of the Treasury. Such an idea is an affront to our free and liberal society and the separation of Caesar's world from our own. We can design a better tax system. Australia's social security system, family law and child-support arrangements all assume that family income and assets are shared between family members. However, as it is presently structured, Australia's tax system does not recognise this economic reality. There are a number of approaches that could be taken to achieve horizontal equity, based on a wide range of international models.

One option is that proposed by the government of Canada, which pledged that once its budget has returned to surplus it will allow couples with a dependent child under the age of 18 to split up to $50,000 of their incomes, each year, for tax purposes. This is a proposal the current Prime Minister of Canada, Stephen Harper, took to the last election. He made the promise that he will do this after a surplus has been achieved. It met with great popularity and is now something the Canadian government is progressing. They add to the list of countries I mentioned before, that already have such systems in place, and is even further evidence that we are falling behind the rest of the world in the treatment of single-income families.

This or other initiatives that involve joint or family based taxation would help bring about a greater level of neutrality in our tax system so that it does not discriminate against, or favour, families that choose to organise their work and lives in different ways. At the heart of any family based tax reform should be choice. If we went with something along the lines of the Canada, the US or France we should ensure that couples always had the option to choose whether they wished to file their tax individually or jointly. If couples did not wish to, they could continue to file as they currently do.

That said, international evidence suggests that when family based tax treatment is made available, married couples generally choose to take it up with enthusiasm. When you look around the world—and there are other countries, as I said, that provide such joint filing for families—the evidence clearly is that when there is a choice for joint or individual filing families predominantly take up the option to joint filing, and generally take it up with enthusiasm. Reforms are needed that recognise the reality of family economics, including family based taxation. This would remove the problem of so-called 'middle-class welfare' by encouraging family self-provision, and letting people take care of their own families, which is how it should be.

I compliment the government for putting in place a wide-ranging taxation white-paper process and I hope they will consider such elements that were ignored, unfortunately, by the previous Henry tax review. If we are serious about helping families in this country we should look at what happen overseas and how successful it is there. We should consider it in our taxation white-paper process, to provide a system that does not discriminate between families and gives the best form of care for our young children.